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Ed's Blog

Today, new CFPB director Kathy Kraninger testifies to Congress for the first time (since her confirmation hearing) to deliver the Semi-Annual Report To Congress of the Consumer Financial Protection Bureau. Chairwoman Maxine Waters and the House Financial Services Committee will need to drill down with tough questions. Why? Kraninger's written pre-filed statement reads like an answer to a warped question from old television's Sergeant Joe Friday: "Just the irrelevant, off-point facts, ma'am." The committee should also look to the cogent testimony of consumer, civil rights, military family and student advocates also appearing today.

"It is well documented that payday and car title loans create a deliberate debt trap that locks the borrowers into long-term debt because they cannot afford to repay the high-cost loan. Payday and car title lenders gain access to the borrower’s bank account and/or the ability to repossess the borrower’s car in exchange for a high-cost loan. Payday and car title loans have an average interest rate of over 300 percent, and some loans charge as high as 600 percent interest. [...] In February 2019, under Director Kraninger, the CFPB released a proposed rule to repeal the 2017 rule’s ability-to-repay provisions and an accompanying rule to delay the compliance date for the 2017 rule. The reasoning and rationale offered for these actions are demonstrably weak, and no more than a thinly veiled, fabricated effort to give the payday lenders what they want. The 2019 proposal rests on the false premise that the 2017 rule was not supported by the evidence, when in fact the CFPB has simply chosen to listen to the payday lenders defending their own predatory business model rather than the extensive evidence gathered through its own rulemaking, supervision, and enforcement."

Jun, a former legal services attorney who previously represented victims of high-cost lending debt traps and unfair financial marketplace practices, goes into much more detail on the history of payday lending,the grant of specific authority by Congress for the CFPB to rein it in, and the five year effort by previous director Richard Cordray and his team to document the problem and do it right, as her magisterial statement describing the CFPB and its statutory duties and responsibilities goes on to explain.

Turning back to director Kraninger's statement, I then did a word search for "student" (student loans were mentioned once in a list of complaint categories) and the words "servicemember," service member," "military" and "veteran." None found. Yet, the Dodd-Frank Wall Street Reform and Consumer Protection Act had established a statutory student loan ombudsman and authorized offices to protect both students and servicemembers, veterans and their families (and other offices to ensure fair lending and protect older Americans). Kraninger's predecessor, acting Director Mick Mulvaney, had already lowered the profiles and responsibilities of those important offices dramatically, so I guess director Kraninger felt no need to discuss their important work.

"And since I left the Bureau in September of 2018, this abdication of responsibility has continued. The position of the Student Loan Ombudsman, as mandated by Congress, sits vacant.The Bureau’s congressionally mandated student loan complaint report remains unwritten.The Bureau has once again failed to highlight how big banks continue to take advantage of students on campuses across the country. Perhaps most disconcerting is that, in the last 15 months, it is impossible to cite a single significant or substantial action that the Bureau has initiated on behalf of the 44 million student loan borrowers in this country."

In addition to gutting these important offices, Mulvaney, and now Kraninger, have pushed a narrative that the Consumer Bureau cannot fully enforce the Military Lending Act without additional Congressional action. The bi-partisan 2007 MLA was enacted to protect active duty servicemembers from financial predators -- partly so that the nation's military preparedness would not be harmed by loss of security clearances due to unpaid debts. Here is what Jennifer Davis of the National Military Family Association said in her testimony today:

"The FY13 NDAA [National Defense Authorization Act] specifically references administration of the MLA in compliance with section 108 of the Truth in Lending Act and any applicable authorities. A plain reading of that law includes supervisory examination authority. While CFPB seems to remain concerned with the overall financial readiness of service members and their families, forgoing its previously recognized MLA supervisory authority opens up military families to fraudulent lending by regulated entities. Furthermore, this reversal puts the onus on military families to catch potential fraud based on their understanding of the law and its protections and to work through the process of reporting such infractions to CFPB in the hopes of reconciliation. This arduous process would distract service members from their missions and result in decreased personal readiness, which would almost certainly impact safety of units and jeopardize operational success on the battlefield."

"The goals of the CFPB were multi-faceted. It was to help consumers navigate the often-complicated world of finances; to ensure that unsustainable loans of any kind, whether they be for home mortgages, automobiles, getting a higher education, or just covering a family emergency with a small dollar loan to name but a few were a thing of the past; and that loans were equally and fairly made without regard to a person’s gender, age, race, ethnicity, sexual orientation or preference, Veterans or disability status, or station in life. In short, and from our perspective, it was the job of the CFPB to educate and protect consumers from experiencing again the horrors that lead to the economic collapse of 2008. This was especially important to groups like ours and the people we serve and represent who were targeted by unscrupulous lenders. In the first five years of its existence, I would argue that the CFPB was on the right track, in terms of informing the American people and protecting consumers. […]

Today, unfortunately, the CFPB is but a shell of its former, vibrant, self. In just two years, Congress and the current Administration have neutered the CFPB and in doing so, they have dramatically decreased the few protections we were able to gain."

Committee members must ask the director hard questions to fill in the massive gaps in her testimony. Yet, we also commend Chairwoman Waters for adding a panel of advocates to help explain the real purpose of the CFPB, what is wrong with it today and how to restore it. Director Kraninger's testimony, unfortunately, appears to have been largely written by the political minders installed at the Consumer Bureau by Mick Mulvaney. At least she, not them, will be answering the questions today. She should also be invited back again and again because there will always be the need to ask: "When will the CFPB return to its mission: protecting consumers?"